Who's driving? Green bank dialectics in Philly
I've been writing the last few weeks about the Inflation Reduction Act's national green bank. The question is whether and how monies from this provision of the legislation could find its way to the School District of Philadelphia's buildings. I'd hope that the IRA provides a big pool of public money to transform Philadelphia's facilities from old, crumbling carbon emitting death traps out of which parents take their children to awesome zero emission facilities that parents are proud to put their children in. Like, let's use this federal money to fix the big problem with our buildings and our environment!
Something I've been wondering: does this funding stream through the IRA create a meaningfully different paradigm for financing school buildings, one that relies less on private credit markets and more on public revenues from green banks that reduce interest rates, fees, and other costs of credit for facilities?
If so, then we could have the material conditions for a Green New Deal for Philly Public Schools. Seriously. But before we go campaigning on this, we have to be sure: to what extent do green banks rely on private capital on the revenue side for the loans they provide? Are the revenues traveling through networks in the municipal bond market, through private banks and financiers, or are these revenue coming from--and administered by--public coffers and officials? Is green capital public capital? Or is it just another kind of private capital that costs just as much but gets used for decarbonizing purposes?
Specifically, is the Philadelphia Green Capital Corporation (PGCC) an actively public bank or a passive vessel for private banking? Here's what I've found.
Financing or facilitating?
PGCC was created in 2021 as an affiliate of the Philadelphia Energy Authority, which itself is an instrument of City Government started in 2011 and whose ordinance was amended in 2018. (The PGCC is part of the Philadelphia Energy Campaign, begun in 2016.) In the 2018 amendment, we should note, the charter for the PEA was changed to include the following language:
[The PEA] shall be limited to actions for and concerning (i) the development, or facilitation and/or financing of energy storage and/or generation projects, (ii) the development, or facilitation and/or financing of energy efficiency projects, and (iii) the purchase or facilitation of energy supply and energy services on behalf of the City of Philadelphia, government agencies, institutions and businesses, as well as the education of consumers regarding choices available in the marketplace, and (iv) the promotion of a vital clean energy sector of the Philadelphia economy and increased employment in the sector by undertaking efforts to strengthen the markets for energy efficiency and energy storage and generation projects. The Authority shall have and may exercise all of the powers set forth in the Act that are necessary or convenient for carrying out its purposes and responsibilities.
Any time you see "and/or financing" is part of the amendment. That seems important because it's within the bounds of the PEA to finance projects rather than just facilitate them. It's a fair question to ask whether and how the green bank, which is part of the PEA, finances green production, specifically when it comes to interest rates, fees, and other costs associated with credit. For instance, if doing a deal with a green bank--at least for a school district--entails just another person at the table while private banks and consultants take what they can get from the district, then it's not really what we're looking for. The district could just do a green bond deal like they did last year. It seems like facilitating doesn't necessarily mean financing, in the sense that you can get a bunch of people together to do a deal, but that doesn't mean you can control the terms of that deal. Which is it?
Who's driving?
Remember that that green bond deal from 2021 was for $60 million. It had a 5% interest rate and fees totaling about $263,000, and who knows how much went to the banks given the premium. What we're looking for is another kind of structure for these flows; a different way of pricing and sourcing them that puts people in charge rather than capital. Of course, capital will be part of the situation (they've got all that capital for now!), but will they be in the driver's seat? Or will the green bank have influence over the terms, conditions, and cost of the deals? I've been using that driver's seat metaphor when talking with people about the green bank. Rather than traditional private capital, a public non-profit entity is in the driver's seat. In this case, private capital is in the car--probably owns the car--but is in a more passive role, riding along. That's the dialectic right there. (As far as I understand it, the financing approach to the New Deal was precisely this kind of setup through the Reconstruction Finance Corporation. James Olson's 2017 history of the RFC is still on my reading list. Hauntingly, its title is Saving Capitalism.)
When the PGCC was started its purpose was "providing access to private capital," with the goal of generating $250 million by 2026. In an interview with Generocity, Maryrose Myrtetus explains that "green banks are not financial or depository institutions. Green banks are nonprofits that focus on clean energy financing," and that “[g]reen banks coordinate with banks on a number of clean energy projects,” she told Technical.ly. “We connect projects to capital. Programs that other green banks have done include working with local credit unions and community banks to provide energy assistance.”
It's the relationship between the PGCC and banks here that I'm most interested in, or what August et al in their paper on the economic geography of public finance in racial capitalism call "interfaces of public finance and private capital." What's the exact interface here? In PGCC's annual report from last year they specify that "unlike a typical commercial bank that functions on deposits and withdrawals, a green bank is an innovative financing operation that expands existing clean energy markets by attracting public, private, and philanthropic capital."
The question, again, is about the politics of "attracting": when a green bank "attracts" financing, are they in charge of the terms and conditions of that financing? I asked Yakov Feygin whether green banks have a say in interest rates and fee structures and he said "yes." Well that's promising! In the PGCC materials, they mention that part of financing clean energy projects means creating "equitable access" to them, specifically helping avoid "restrictive financing which excludes moderate-low income" people and businesses. Another thing I heard from Henry Litman at the Coalition from Green Capital is that green banks can create interest rate policies that reduce the rate as the project becomes more decarbonized. A zero emissions project would therefore have a zero percent interest rate. Which is pretty cool! If green banks can do that, then it seems to me they're in the driver's seat since the private banks definitely wouldn't go for that.
At the same time, when I see the rates that the PGCC offers on its existing products, I see pretty high interest rates. The Navigator program has between 5-5.9% whereas the Catalyst loan has 5.79-6.99%. Those are actually more than the rate the school district got on its recent green bond. Will the PGCC be able to push down that interest rate for the district?
Everything comes down to these terms. If the green bank can negotiate lower interest rates and fees for the school district, then to me it's financing the project and not just facilitating it. The bank is something like a public bank because it is in the driver's seat when it comes to the cost of the credit. If the PGCC can drive a school district project in this way, then I think it could be the material conditions for a Green New Deal for Philly's schools. It would seek capitalization from the Greenhouse Gas Reduction Fund in the Inflation Reduction Act, working with the Coalition for Green Capital, to structure a financing process that decarbonizes school buildings in the district and doesn't let private capital drive.
But if the PGCC can't do this negotiating work and push back against private credit's interest rate and fee structure, then I'd be less excited about it. This is a question I think I'll have to ask them. They'd have to come up with a new program for the district, and it might be that this new program has better rates. We might even be able to set up a committee to ensure they do. So in a way, the dialectics of a green public loan for the school district are just that: a contingent struggle that we have to work to shape to serve us rather than the carbon-emitting ruling class.